3553: Should You Do a Debt Consolidation Loan? by James Lambridis of DebtMD on Debt Payoff Strategy

Summary

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Podcast Summary: Optimal Finance Daily – Episode 3553

Should You Do a Debt Consolidation Loan?
By James Lambridis of DebtMD | Hosted by Diania Merriam | May 9, 2026

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Episode Overview

This episode explores the pros, cons, and common misconceptions surrounding debt consolidation loans. The reading, written by James Lambridis of DebtMD, is presented by host Diania Merriam, who expands on how individuals can use debt consolidation as part of a broader debt payoff strategy. Diania also adds critical commentary on alternatives to debt settlement, emphasizing practical steps for sustaining financial independence.

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Key Discussion Points & Insights

1. What is a Debt Consolidation Loan?

• Definition: A debt consolidation loan is used to pay off multiple types of debt—like credit cards, medical bills, or student loans—by combining them into a single loan with potentially better terms.
• Motivation: Helps to simplify finances and can reduce your interest rate or monthly payment if structured correctly.
  • “No matter what types of bills may be hindering your financial health, a debt consolidation loan is a viable option to help you save money and become debt free in a reasonable time frame.” (01:01)

2. Where Can You Get a Debt Consolidation Loan?

• Traditional Lenders: Start with local banks or credit unions for potentially lower interest rates.
• Online Alternative Lenders: Platforms like Upgrade, Upstart, and SoFi provide quick approval and a fully online application process, but sometimes at higher rates.
  • “There are plenty of online peer to peer lenders... Upgrade, Upstart and SoFi are three of the most reputable.” (02:00)

3. Should You Apply for a Debt Consolidation Loan?

• Main Criteria: Only consider it if it lowers your interest rate or monthly payment—or ideally both.
  • “Are you lowering your monthly payment and or interest rate? If you can accomplish one of these, or ideally both, a debt consolidation loan probably makes sense for you.” (02:22)
• Interest Rate Trap: Ensure the new loan’s interest rate is below your current debts.
  • “There’s no point in taking out a loan at 30% APR to pay off credit cards with an average interest rate of 19%.” (02:45)

Key Quote

“In the end, it comes down to a simple numbers game. If you’re able to save money on a monthly basis and can lower your overall interest rate through a debt consolidation loan, then you should do it. If not, then stay away...”
— James Lambridis (03:15)

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4. Common Misconceptions

• Myth 1: Debt Consolidation = Debt Freedom
  • Truth: You’re not getting rid of debt; you’re simply combining bills into one loan to make repayment simpler.
  • “All you’re really doing is transferring your debt from multiple bills to one loan. While it does simplify your finances, you still owe money that you need to pay back.” (03:32)
• Myth 2: Credit Score Instantly Improves
  • Applying can temporarily hurt your score due to credit inquiries and a new loan on your report; improvement comes with consistent repayment.
  • “Applying for a new loan can actually hurt your credit score… Once the loan is paid off and your overall debt has decreased, you can expect your score to improve.” (04:10)

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5. Budgeting & Building Good Habits

• Importance of Budgeting:
  • Continue tracking expenses and avoid accumulating new debt.
  • Start saving once debt-free.
• Sobering Statistics:
  • “According to Spend Me Not, 69% of adult Americans have less than $1,000 in a savings account… 54% of those aged 45 to 54 have no savings...” (04:45)
• Living Within Means:
  • Track spending and ensure monthly income exceeds expenses.

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6. Mistakes to Avoid

• Don’t Re-Use Paid Off Credit Cards:
  • “A big mistake to avoid at all costs is securing a debt consolidation loan and proceeding to charge on the same exact credit cards you paid off...” (05:10)
• Don’t Include Low-Interest Debt:
  • Focus only on consolidating high-interest debts.
• Don’t Ignore Budgeting:
  • Financial planning/budgeting should continue post-consolidation to prevent relapse.

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7. Three Key Takeaways

1. Only consolidate if it lowers your payment or interest rate.
2. Stop using credit cards once they’re paid off through consolidation.
3. Improve budgeting to avoid future debt.

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8. Host Commentary: Alternatives to Debt Settlement (Diania Merriam, 08:17)

• Debt Settlement Risks:
  • Debt settlement companies often request stopping all payments, risking lawsuits, higher fees, and deeper debt (“...could leave you deeper in debt than you were when you started.” 08:25).
  • Damages your credit score.
  • “Most debt settlement companies will ask you to stop paying your debts in order to get creditors to negotiate…if that happens, the built up penalties and fees on the unsettled debt may wipe out any savings the company achieves…” (08:30)
• Non-Profit Credit Counseling as an Alternative:
  • Recommends the National Foundation for Credit Counseling for support with debt management and budgeting.
  • “These nonprofits can attempt to work with you and your creditors to develop a debt management plan that you can afford.” (08:55)

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Notable Quotes & Memorable Moments

• “Debt consolidation isn’t a magic pill that solves your debt problem. It’s simply a vehicle to help you become debt free quicker while saving money in the process.” — James Lambridis (03:55)
• “Track all of your spending through a spreadsheet and know exactly how much of your monthly income goes towards essential bills and discretionary spending.” — (06:03)
• “If you don’t qualify for a consolidation loan, you might be tempted to look at offers from debt settlement companies, so I wanted to offer a word of caution here…” — Diania Merriam (08:18)

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Important Timestamps

• 00:52 – Start of episode content and introduction to debt consolidation loans
• 02:00 – Sources for debt consolidation loans
• 02:22 – Main criteria for consolidation: interest rate and payments
• 03:32 – Common misconceptions
• 04:45 – Statistics on savings habits in America
• 05:10 – Mistakes to avoid post-consolidation
• 08:17 – Host’s caution about debt settlement companies and nonprofit alternatives

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Conclusion

This episode offers a clear, practical framework for evaluating debt consolidation. The advice is actionable: only consolidate if it genuinely saves money, avoid falling back into old habits, and always prioritize budgeting and living within your means. Diania’s closing thoughts stress safer alternatives to debt settlement and encourage listeners to seek reputable nonprofit help when in doubt. Financial independence is possible—but only with discipline and the right information.

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Transcript

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This is optimal Finance Daily should you do a debt consolidation loan? By James Lambridis of debtmd.com perhaps your credit card bills have been piling up ever since you took that vacation to Aruba last summer. Or maybe you had a medical emergency that your health insurance did not fully cover. It could even be that you're still stuck with some student loans that you took out when you decided to go back to school and you want to accelerate their payoff. No matter what types of bills may be hindering your financial health, a debt consolidation loan is a viable option to help you save money and become debt free in a reasonable time frame. However, before taking out a loan, there are several things to consider. Where can you get a debt consolidation loan? The good thing is that in today's day and age, there are many lenders and financial institutions that offer these types of loans. You can start off by checking in with your local bank or credit union as this is where you'll find the lowest interest rate if you cannot get approved by them. There are plenty of online peer to peer lenders that offer debt consolidation loans. Upgrade upstart and SoFi are three of the most reputable. While your interest rate through these platforms may be a bit higher, the application process is seamless and everything can be done online. Should you apply for a debt consolidation loan? Deciding whether to do a debt consolidation loan boils down to two very simple things. Are you lowering your monthly payment and or interest rate? If you can accomplish one of these, or ideally both, a debt consolidation loan probably makes sense for you. There are many lenders out there who offer these types of loans. However, interest rates can vary significantly, ranging anywhere from 5% to all the way up to 35%. There's no point in taking out a loan at 30% APR to pay off credit cards with an average interest rate of 19%. While it may feel good to get rid of some high credit card balances, a high interest loan won't benefit you at all. Your monthly payment will be just as high and you won't be saving any money on interest. In the end, it comes down to a simple numbers game. If you're able to save money on a monthly basis and can lower your overall interest rate through a debt consolidation loan, then you should do it. If not, then stay away and do as best you can to apply more funds to paying down your individual bills. Common Misconceptions There's a common misconception that by doing a debt consolidation loan, you instantly become debt free. On the contrary, all you're really doing is transferring your debt from multiple bills to one loan. While it does simplify your finances, the fact of the matter is you still owe money that you need to pay back. Bottom line, a debt consolidation loan isn't a magic pill that solves your debt problem. It's simply a vehicle to help you become debt free quicker while saving money in the process. Another misconception is that by doing a debt consolidation loan, you'll instantly improve your credit score. However, depending on how many inquiries on your credit you've done, applying for a new loan can actually hurt your credit score. While you'll be paying off high balance credit cards, you'll also have a new loan on your report. Once the loan is paid off and your overall debt has decreased, you can expect your score to improve. Lastly, even if you do pay off your debt with a consolidation loan, you should still try to improve your budgeting and personal financial planning. Learn from your mistake of getting into debt and make sure you stay debt free in the future. You should keep doing a log of all of your expenses and try to do away with any unnecessary expenditures. After becoming debt free, your next initiative should be to begin building your savings. According to spend me not, 69% of adult Americans have less than $1,000 in a savings account, 54% of those aged 45 to 54 have no savings, and 22% of Americans have less than $5,000 saved for retirement. The key to accruing a substantial amount of savings is to live within your means. Track everything and always be sure that your monthly income exceeds your monthly expenses. Mistakes to Avoid A big mistake to avoid at all costs is securing a debt consolidation loan and proceeding to charge on the same exact credit cards you paid off with the loan proceeds. Many people fall into this trap and it only exasperates their debt problem. Doing this means that you now have a loan payment to make and also need to worry about paying all of your credit cards. Another mistake to avoid is transferring all of your debt onto one loan. If you have a low interest credit card or an auto loan, which will typically have a lower rate than other unsecured debts, there's no need to include those in the debt consolidation loan. Focus on consolidating only your highest interest bills into the new loan. Lastly, despite consolidating your debt, you should still continue to improve your budgeting and financial planning. The reason many people get into debt in the first place is from their lack of a budget. Track all of your spending through a spreadsheet and know exactly how much of your monthly income goes towards essential bills and discretionary spending. When your total expenses exceed your total income, that's when you know there's a problem and you need to change your habits. Three takeaways 1. Only do a debt consolidation loan if you can lower your monthly payment and or interest rate. 2. 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I think a debt consolidation loan could be helpful if you've already diagnosed and dealt with the issues or behavior that caused you to get into debt. If you don't qualify for a consolidation loan, you might be tempted to look at offers from debt settlement companies, so I wanted to offer a word of caution here. The Consumer Financial Protection Bureau issued an article highlighting the dangers of working with debt settlement companies. Also sometimes called debt relief or debt adjusting companies, debt settlement could leave you deeper in debt than you were when you started. Most debt settlement companies will ask you to stop paying your debts in order to get creditors to negotiate and to collect the funds required for a settlement. But some of your creditors may refuse to work with the company you chose. These settlement companies also charge expensive fees and in many cases they won't be able to settle all of your debts. If that happens, the built up penalties and fees on the unsettled debt may wipe out any savings the company achieves on settled debts. Stopping payments on your debt and avoiding the collection calls, as debt settlement companies will tell you to do, will have a negative effect on your credit score and and could result in the creditor or debt collector filing a lawsuit against you. An alternative to a debt settlement company is a non profit consumer credit counseling service. These nonprofits can attempt to work with you and your creditors to develop a debt management plan that you can afford. They also will help you develop a budget and provide other financial counseling. Check out the national foundation for Credit Counseling. They're a nonprofit network of certified financial counselors that can help you come up with a plan and negotiate your debt. And that will do it for today. Have a great day and weekend and I'll be back here tomorrow where your optimal life awaits.